Energy Costs

Molly Scott Cato: No one doubts that Hinkley is an economic disaster, but it has been kept alive by a dubious subsidy regime. As a “mature technology”, nuclear should never receive a subsidy, which is why there are ongoing legal challenges on this point. By contrast, the dramatic fall in the cost of offshore wind, and other renewable technologies, prove the value of subsidising “infant industries” until they are mature enough to survive and thrive subsidy-free. But it’s not just dodgy economics that have kept the Hinkley white elephant staggering on. It is also a warped anti-renewables, pro-nuclear ideology, something highly evident in my own constituency of the South West. Lest we think it is just the Tories and Ukip standing in the way of a genuine transformation to cheaper, greener energy, Labour too has refused to ditch nuclear. The party is still trumpeting the thousands of jobs new nuclear, including Hinkley, can deliver. This view is deeply flawed. Evidence suggests that renewables create around three times as many jobs as nuclear for every £1m invested.

Anthony Froggatt: There can be no doubt that the Government’s announcement of the results of the 2nd round of auctions for allocating financial support scheme for renewables is a major boost for offshore-wind. The Contracts for Difference (CfD), which is the fixed price that the developer will get paid regardless of the market price of electricity, for offshore wind was agreed at between £57.40-74.75/MWh, which is a remarkable 50% below the similar auction in 2015, which itself was a significant fall from the contract prices of £140-150/MWh awarded in April 2014. This fall in costs has come much faster than the Government and its advisors envisaged. For example, as recently as 2011, the Committee on Climate Change estimated that offshore wind, by 2030, would cost in the range of £85-135/MWh (with a 10% discount rate). As many commentators are right to point out, the latest auction results clearly show that offshore-wind production costs are now well below that of nuclear power, as Hinkley Point C was awarded a CfD price of £92.5 (index linked) in 2013. Furthermore, the price guarantee for nuclear power is for 35 years, compared to 15 years for off-shore wind, so UK consumers will be paying even more for Hinkley’s electricity than wind power in the 2040s and 2050s. In fact, over the last decade the Government’s own estimated costs of nuclear power have increased almost as fast as the costs of wind have fallen. In the 2008 White Paper on Nuclear Power the Government estimated that using a 10% discount rate the cost of nuclear produced electricity would be £38/MWh. As the latest version of the World Nuclear Industry Status Report shows, rising costs of nuclear new build is a global trend, with increases seen amongst others in China, France, Finland and the United States. Therefore, there is little prospect that construction costs will start to level off, never mind begin to fall. In August the Government announced an independent review of the cost of energy, headed by Professor Dieter Helm, whose remit it is make recommendations about how the decarbonisation objectives can be met, ‘in the power sector at minimum cost and without imposing further costs on the exchequer”. It will be vital that the review considers how and why energy cost forecasters have consistently got it so wrong in the case of offshore wind (and renewables in general) and nuclear power. Only then, can there be any confidence in its recommendations.

A balanced energy mix of nuclear, gas (including hydraulically fracked) and renewable energy sources is the only way of ensuring continuity of supply says GMB. GMB, the energy workers’ union, welcomes the latest CfD auction results showing falling prices in offshore wind projects as published by National grid today, Monday 11 September. However, today’s strike prices of between £57.50 and £74.75 per MWh do not reflect the total costs borne by the consumer. £10-£15 per MWh needs to be added to reflect the need for back-up capacity when the wind is not blowing during a period of high demand and the cost of wasted generation when there is too much wind.

Energy from offshore wind turbines is cheaper than electricity from new nuclear power for the first time ever. The costs of subsidies for new offshore wind farms have reached a record low, halving in less than three years. Two wind farm firms have secured a state-backed price for their output which is significantly lower than Britain’s newest nuclear power site, Hinkley Point C.

The case against renewable energy took a severe blow this week after wind power firms won the rigged race for a government subsidy. They bid to build offshore wind farms in exchange for a guaranteed price of £57.50 a megawatt hour of electricity that they generate in the next 15 years. That “strike price” is about half what new wind farm projects went for just two years ago. It’s also far lower than the subsidy thrown at the Hinkley Point C nuclear plant. The government guaranteed it a strike price of £92.50 a megawatt hour plus inflation. Onshore wind and solar were barred from the subsidy auction. Their subsidies have been slashed. It’s not because they are expensive. In some areas wind and solar power already cost about the same as gas and less than nuclear.

Two offshore wind schemes won contracts at record-lows of £57.50 per megawatt hour (MWh). This puts them among the cheapest new sources of electricity generation in the UK, joining onshore wind and solar, with all three cheaper than new gas, according to government projections. The offshore wind schemes are also close to being subsidy-free: the Department for Business, Energy and Industrial Strategy (BEIS) expects wholesale power prices to average £53/MWh in the period from 2023 to 2035, covering the bulk of their 15-year contract period. The auction results shift the conversation, from renewables being expensive, towards how cheap, variable zero-carbon power can be integrated into the grid, while maintaining sufficient supplies of power throughout the year.

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